Best allows A+ insurers to go one better

STAYING AHEAD

New York Looking for the very soundest insurance companies? For years, consumers have sworn by the top, A-plus rating from the venerable insurance rating service A.M. Best.

But Best has made an important change in its rating system, and it's critical that you learn the code. The most substantial companies on Best's list are now being rated A-double-plus. Companies rated A-plus are newly in the second rank, not in the first.

Don't make too much of that. An A-plus rating remains superior, so you can generally buy these policies with confidence. If you're super-super-conservative, however, you'll be comforted with a policy from the short list of companies rated A-double-plus.

A.M. Best made this change, it says, to draw "finer distinctions" among companies. Translation: It felt it had to respond to well-founded charges of grade inflation.

Back in 1975, when Best adopted letter grades for life-health insurers, the top category swelled. Previously, 134 companies had been rated "most favorable most substantial" (then the highest accolade), according to insurance professor Joseph Belth of Indiana State University. After the change to letter grades, the new A-plus category contained 203 companies.

Similarly, the next two categories contained 157 companies in 1975, recommended in language somewhat less strong. After the change, the second, A-rated category contained 243 companies.

Larry Mayewski, vice president of A.M. Best's life-health division, says there was no direct correlation between the old and new categories, so they can't really be compared. But the fact remains that, overnight, 69 more companies were rated tops, while an additional 86 were rated second best.

In recent years, Best has lost its longtime monopoly on insurance ratings, as well as some of its credibility.

Three major competitors -- Standard & Poor's, Moody's and Duff & Phelps -- as well as the new Weiss Research, Inc., have increasingly been giving insurance companies tougher marks.

L Best's new system brings it closer to its major competitors.

The standards for becoming an A-plus insurer haven't changed, Mr. Mayewski says. But the truly superior companies within that group have now been given an extra plus.

A.M. Best is currently going through its annual re-rating. So far, it has examined 118 companies in the A-plus category. Of those, 24 moved up to A-double-plus, eight moved to lower ratings and 86 remained the same.

The promoted companies include John Hancock Mutual Life, Prudential Insurance Co., Massachusetts Mutual Life, Principal Mutual Life and State Farm Life. Some well-known names that stayed at A-plus: Connecticut Mutual Life, New England Mutual Life, Pacific Mutual Life, Ameritas Life and SAFECO Life.

Among those that lost their A-plus rating were The Travelers Life and Colonial Penn (both now rated A). Mutual Life of New York (MONY), previously an A, dropped to A-minus.

A.M. Best also divided its old B-plus category into B-plus and B-double-plus. But conservative buyers shouldn't be messing around with these levels. Mr. Belth recommends that you stick with companies rated A-double-plus or A-plus (and with similar ratings from at least one of Best's three major competitors).

One other change in Best's system, however, has not been as helpful to consumers.

A.M. Best maintains a Watch List for insurers whose financial performance has been deteriorating. A company on the list has its rating modified by a little "w" -- changing, say, an A-plus rating to A-plus-w. Often (but not always) the "w" precedes a drop in rating.

In the past, Best required insurers with a "w" to disclose that any time they publish their A.M. Best ratings. Now they don't have to, leaving consumers and most life insurance agents in the dark. Mr. Mayewski says that the "w" unduly worried consumers, because competing insurance agents often exaggerated its meaning. But now, you might buy a policy without realizing that Best is thinking of downgrading it. "Awful. Terrible," Mr. Belth says. "Consumers are entitled to know."